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Sunday, December 20, 2009

As Goes Goldman Sachs So Goes The Market - PART II

Attached is a link to Mish Shedlock's latest blog at Global Economic Trend Analysis. In it Mish discusses Germany being what was the last bastion of fiscal rectitude in the Euro region planning to significantly increase it's fiscal budget for 2010 resulting in a more than doubling of it's borrowing from 37 to 87B euros.

It is this excert from the article that is most interesting:

"Who Coulda Thunk?
Just a few days ago someone was buying UUP dollar calls (UUP is a long USD ETF). There were 340,000 calls traded vs. 183 puts. Coincidence?

What Happened Since

Additional downgrades of Greece by Moody’s

Action by the ECB on covered bonds

German budget deficit about to balloon

There is a very big difference between a concentrated bet by one or two players and the masses speculating in calls. That trade smacked of someone knowing something (or thinking they did, and in this case correctly)."

courtesy www.globaleconomicanalysis.blogspot.com

Let's recap what I said in my original As Goes Goldman Sachs So Goes The Market post on November 16.

"The blood sucking vampire squids of the financial system generally have a good idea as to where the markets are heading. Even when they are wrong however they can still rely on the good grace of the US Treasury & Federal Reserve to bail them out as was the case in the disgraceful way the AIG bailout was handled.

Observant readers will notice that Goldman Sachs has a rather significant net short exposure to CurrencyShares Euro Trust. This is essentially a short Euro/Long Dollar trade."

Since that post UUP is up 3.8% (9.4% in AUD terms) so I guess Goldman Sachs knew where the market was heading again despite the incessant bearishness towards the USD at the time (which still remains by and large), just as they did when they were shorting the subprime mortgage backed securities they were selling to their clients in 2007.

Traders could do worse than to follow the "if you can't beat em join em" edict.